Recent findings indicate that regions in the medial temporal lobe (MTL) do not only play a crucial role in long-term memory (LTM) encoding, but contribute to working memory (WM) as well. However, very few studies investigated the interaction between these processes so far. In a new functional magnetic resonance imaging paradigm comprising both a complex WM task and an LTM recognition task, we found not only that some items were successfully processed in WM but later forgotten, but also that a significant number of items which were not successfully processed in the WM task were subsequently recognized. Activation in the parahippocampal cortex (PHC) during successful WM was predictive of subsequent LTM, but was correlated with subsequent forgetting if the WM task was not successfully solved. The contribution of the PHC to LTM encoding thus crucially depends on whether an item was successfully processed in the WM task. Functional connectivity analysis revealed that across-trial fluctuations in PHC activity were correlated with activation in extensive regions if WM and LTM tasks were correctly solved, whereas connectivity broke down during unsuccessful attempts to do the task, suggesting that activity in the PHC during WM has to be well controlled to support LTM formation.